A key element of San Bernardinoâs plan to get through bankruptcy is being challenged by CalPERS, which is demanding payment of $6.9 million in pension payments the city has failed to make.

The California Public Employeesâ Retirement System, the stateâs primary pension manager, filed a motion in U.S. Bankruptcy Court in Riverside on Tuesday, Nov. 27, asking that it be allowed to sue to collect the funds. The issue could be heard Dec. 21 at the cityâs next court hearing.

âAs responsible fiduciaries, we must protect the retirement security of all CalPERS members,â stated Anne Stausboll, chief executive officer of the agency, in a news release.

She said the action would allow it to âmaintain the integrity of the San Bernardino pension plan for its public employees and retirees and to avoid needless procedural disputes and legal costs.â

The motion came only a day after the City Council on Monday, Nov. 26, approved an operating budget for the next 19 months that relies on deferring $35 million in debts --including to CalPERS, its largest creditor â" to get the city through bankruptcy.

During their discussions of the so-called pendency plan â" approved on a split 5-2 vote â" supporters framed it as a matter of the cityâs survival and said they could not afford to make more cuts and still keep the city operating.

âWeâre paying our employees, and thatâs all we have within our capacity is to keep the payroll current and little else,â San Bernardino Mayor Pat Morris said.

Since it filed for bankruptcy Aug. 1, San Bernardino has stopped making the employer share of biweekly pension payments to CalPERS, which comes to $6.9 million so far, according to the agency.

City officials have said they hope to negotiate repayments over time and have already been in discussion with CalPERS. Morris said he hopes the city can resolve the issue with CalPERS.

âWeâre in many ways married to each other. Weâre partners,â he said. âWe want to keep domestic tranquility in the CalPERS relationship.â

Amy Norris, a spokeswoman for CalPERS, confirmed that the agency has been working with the city but said she didnât know the specifics of the discussions or what kind of repayment plan would be acceptable. At this point, the agencyâs goal is to make sure the city stays current with its obligations as required under state law, she said.

The motion against San Bernardino comes only a month after CalPERS sued the city of Compton over its failure to make pension payments. Compton has since begun repaying the agency, according to news accounts.

Karol Denniston, a San Francisco municipal restructuring and bankruptcy attorney who helped draft state bankruptcy legislation, said CalPERSâ action was not a surprise.

She said the agency wants to mark âa line in the sand,â letting cities know they cannot shirk from making their pension obligations. She said the cityâs pendency plan, which included no details about how the city would repay the agency, gave CalPERS no choice.

Denniston described the legal action a precedent-setting one that creates a collision course between federal bankruptcy law â" which allows cities temporary relief from their debts â" and state law requiring CalPERS be paid.

âItâs a big stake issue for both sides and whatever happens is going to have huge ramifications going forward for municipal bankruptcies,â she said.

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